Solving the Best of Breed vs. Incumbent Sourcing Problem – Beyond Selecting Technology

I was talking to a category manager in the marketing space who I’ve known for decades about his category management plans for 2015. He had a successful year in 2014 driving value in the public relations category but was now looking at broader marketing promotions and, of course, the impact of digital marketing. His stakeholders are in multiple business units and regions, and his expanding “market basket” is becoming highly multivariate in terms of how you break it up by business unit, region and type of service (by process/sub-process; digital vs. conventional, etc.).

FREE Research: Quantifying and Tracking Hard Cost Savings

After helping him through a few issues, I asked him about his experiences with the large “integrated” agencies since he had worked on that side of the table before. He snorted and said that the mega agencies that had been acquiring niche competitors (e.g., in digital media) were horribly integrated even though they were touting the benefits of a one-stop shop. He has found that the newer best-of-breed agencies that had digital “built into their DNA” and had a truly integrated service offering were more successful. He also found that they were winning more deals than the big incumbents.

“I know your problem well,” I said with a laugh.

I told him about how this same effect was occurring in multiple supply markets, including, of course, the technology applications markets such as the procurement/supply chain market (e.g., just replace “digital” in marketing with “SaaS” in tech apps). I referred him specifically to my article, “Don't Fall for the Myth of the Integrated ERP Procurement Vendor,” and also pointed out the success of the newer applications suites (and even Oracle with Oracle ERP Cloud) compared to a “holding company” incumbent like SAP. He said he could relate because he uses SAP/Ariba, but he really loves Decideware.

The rest of conversation was focused on explaining to him how many progressive companies are attacking this problem of very large complex, dynamic and multivariate market baskets with many incumbents and stakeholders. We discussed market informed sourcing and some strategies to supersize his market baskets (see here and here) and began to re-think his spend categories alongside his stakeholders.

As a side note, I also tried not to use terms like “constraint-based combinatorial bid optimization,” but talked about this problem in the context of business strategy and how to apply strategic sourcing best practices to any category – whether it’s marketing spend or business applications (and procurement/SCM applications). I also shared how these firms do not fall victim to the sunken-cost fallacy or a winner-take-all approach in managing such large market baskets. Finally, we discussed the challenge of dealing with spend taxonomy silos and organizational silos and the best way to break down internal barriers to “open up demand” and how to also use supply market intelligence to that end as well as to “open up supply.”

As there is increasingly a dual convergence and virtualization between physical supply chains (products and services), information supply chains and financial supply chains, supply markets will constantly be re-shaped. If procurement cannot help itself in managing its own spending and industrializing its own services value chain (alongside its internal functional “partners” of IT, finance and HR), it will struggle in trying to help its stakeholders with the other 99% of spending going out the door.

Conversely, if procurement (and the providers that serve it) can help proactively shape the discussion on how to best frame and predict supply markets in order to best tap them (e.g., via innovation processes/programs), then it is essentially helping to shape/improve the business strategy rather than just “doing deals and paying bills” to execute on a small sliver of a strategy determined by someone else.

As Tom Linton, the CPO of Flextronics, says, “You have to lead the business – or the business will lead you.”

Which future would you prefer?

As always, we’d love to hear your thoughts – publicly or privately.

Share on Procurious

First Voice

  1. kris colby:

    where’s the “like” button?

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.